- Israel sits in the cold after weeks of mass protests.
- On Monday, Prime Minister Benjamin Netanyahu said he would delay passing a law that critics say would weaken the judiciary.
- Some executives are concerned about what the violence will mean for Israeli companies.
© Contributed by CNBC Protesters gather at the gates of the Israeli parliament building in Jerusalem, March 27, 2023, calling for a general strike against the far-right government's controversial campaign to overhaul the justice system.
Israel is experiencing a cold snap after widespread protests against plans that would significantly weaken the country's Supreme Court.
On Monday, Prime Minister Benjamin Netanyahu said he would delay passing a law that critics say would weaken the judiciary by changing how Israel's top judges are vetted. The Knesset (Israel's parliament) allows decisions of the Supreme Court to be overturned by a simple vote. And the court prevents the revision of many laws passed by the legislature.
The uncertainty of the political situation in Israel affects the economy. Large Israeli companies get most of their sales from the US, Europe and Asia as Israel is a small market compared to the global economy. And most of Israel's neighbors have little to no trade with Israel.
This month, ratings agency Fitch warned that the lawsuit "could weaken Israel's creditworthiness." Moody's issued a similar statement that "the proposed changes could seriously weaken the power of the justice system." However, so far the agencies have not changed Israel's credit rating.
What is business risk?
“I talk to investors all the time who want to know what the risks are,” said Tomer Weingarten, CEO of cybersecurity firm SentinelOne. "It's become an environment where they're not sure they're comfortable."
SentinelOne in Israel has 300 employees. It has a venture arm that invests in the country. Weingarten said he may be delaying this capital flow "out of fear of what might happen."
Some Israeli companies fear that issues related to taxes, workers' rights, investors' rights and other important issues will be decided by the Supreme Court appointed by a right-wing government that does not share their beliefs.
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But the CEO of Netera Technologies, the Jerusalem-based digital health company and CNBC revolutionary, disagrees. Isaac Litman sees no impact on foreign investment despite knowing it is vital to his business and the Israeli economy.
“People are talking heatedly, fires are lit all over the country, and this is causing massive fires,” Littman said. His unlisted company just completed a funding round, the fight for justice "has never happened."
Littman said he agrees that investors have yet to weigh the risks, but he believes the issues will be resolved within six months. The current crisis is “a kind of stress test for startups and investors,” Littman said, “but we are strong, our economy and our workforce are strong, and we can handle it.
Although he had not yet seen it, the Watcher on the Weingarten predicted that the political climate would force some of his associates to leave the country. “I will consider any request from an employee,” he said.
What Weingarten fears most is the irreconcilable division of Israel, where a high degree of unity was once taken for granted.
Netanyahu's concerns
Recent polls show that two-thirds of Israelis oppose plans to reform the judiciary.
On Monday, Netanyahu said he would give a month to discuss the law. Between Jewish holidays and spring break, however, the Knesset has Memorial Day and Israeli Independence Day, which celebrate Israel's 75th anniversary .
They're all connecting points, but as David Makowsky of the Washington Middle East Institute says, "Without big moves toward agreement, this seems unlikely."
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The political struggle has caused serious damage to the economy. The shekel has rebounded from a low but has fallen 10% against the dollar in recent weeks. The Tel Aviv stock market has fallen 20 percent since the start of the year.
Makovsky told CNBC that everything depends on the prime minister's political survival.
"For things to get better, Netanyahu's choice must be free," he said. This recession will force the prime minister to behave more harmoniously with his right-wing coalition partners in public.
© Women in maid uniforms, courtesy of CNBC.
There are signs that this is starting to happen. If elections were held today, Netanyahu's Likud party would lose seats and fail to form the right-wing coalition it currently has, according to opinion polls released on Monday.
Makovsky said that if Netanyahu really wants to save the day, he can tell his right-wing allies: "They are leading us to hell", "If you want to stay in power, you have to be where the country is."
But it's unclear whether right-wing coalition members will accept the proposed changes to the justice system. Failure to do so could lead to the overthrow of this government and new elections – Israel's sixth in four years.
